Qualcomm Earnings Call Insights: ASP Trends and QCT Gross Margin

Qualcomm (NASDAQ:QCOM) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

ASP Trends

T. Michael Walkley – Canaccord Genuity: I was wondering if you could discuss the ASP trends for the total device market. It seems there was a lack of the high-end product introductions during the March quarter, but there’s a lot of a high-end flagship devices ramping into the market during the June quarter can we expect QTL ASPs, maybe to increase (exiting) fiscal year relative to your guidance. And am I calculating it right that your guidance also implies an uptick in ASPs for the June quarter? Thank you.

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Derek Aberle – EVP and Group President: This is Derek. I’ll take that one. Yeah, I think we saw little bit of a downward trend in ASPs in Q2 although that was in line with what we expected. As we’ve looked back historically the last couple of years, we’ve seen actually ASPs kind of trend down in Q2. But then they’ve tended to trend up in Q3 and Q4. So as we look out at the back half of the year, we are expecting a rebound in ASPs as compared to the Q2 ASP and that’s including offsetting effect from FX. So I do think both in the March and the June quarter we should see some improvement in the ASP compared to Q2.

George S. Davis – EVP and CFO: As a reminder, again, our range for the full year is still – we’ve narrowed it a little bit, but it still has a midpoint at (220).

T. Michael Walkley – Canaccord Genuity: Then Derek, just on the FX, if there was any impact to FX in the short-term or any impact from the yen in particular, and then just longer-term with the stronger mix from low-end markets, how do you see the ASP trend, is it still kind of single-digit annual decline, is a good way to think about it?

George S. Davis – EVP and CFO: This is George. I’ll cover the near-term impact and maybe Derek you can cover your views on the longer-term impact. Actually we did experience some impact from the yen in the second quarter and really for the full year. But in both Q2 and Q3 the net effect has been minimal in Q2 in particular because of the favorable impact from other currencies. So, for the full year we see FX being about a dollar impact on ASP, so not much of an impact and virtually no impact in Q2.

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Derek Aberle – EVP and Group President: So back on the longer-term trends. I think really the trends that we’ve been seeing and that we highlighted back at the Analyst Day in November, two quarters in are really holding, and we see them remaining intact. In particular, in the emerging regions, the ASPs have continued to increase and in fact when we talk about sort of the tiers, the interesting thing is, although the volume is continuing to grow there, the percentage of the units coming from the mid and high-tier has kind of been holding, and so I think both of those trends are consistent with what we expected at the beginning of year and will continue. But as you said, over the long-term, as more volume shift to emerging regions, you know in terms of our internal plans, we’ve got baked in assumptions that will be single-digit declines in ASPs over the longer term.

QCT Gross Margin

Tim Long – BMO Capital Markets: I just wanted to go a little further into the detail into the QCT gross margin. Steve, you mentioned it down as expected. I just want to put that together with a few things. First, last quarter Bill had mentioned a positive contribution of gross margin from QCT. So, I think it went up 2 or 3 points, doing the math. It’s looking like it went down about 6 points or so, 5 or 6 points this quarter into March. So, it seems like a little bit of a reversal there, and you are seeing as expected, I’m curious what that means? And what do we think about from the market drivers for this changing gross margin, meaning, is it QRD and MediaTek competition, is it new LTE devices from competitors finally starting to hit the market, and at some point do we start to see a floor in this gross margin number for QCT? Thank you…

Steve Mollenkopf – President and COO: In Q1, excuse me, Q2 from Q1. Couple of things happen one if you get the normal calendar year price reset which hits in this quarter. We also had a bit of weaker mix from the prospective of more units coming in from emerging markets versus developed markets. The December quarter tends to be pretty heavy in terms of buildup in the developed, you probably saw a little regional mix move away from the developed world. We also mentioned on the last call that we were in the middle of doing some, we also think about how we do our pricing strategy, which I think comprehends not just short-term, but also long-term views of the competitive landscape. One thing that I should mention we really are not seeing significant, competitive threat in the LTE areas as you mentioned. I think it’s just more of a mix issue and some of the calendar items that you’ve probably seen over your past years as well.

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Tim Long – BMO Capital Markets: Forgive me, but I thought ASP looks pretty much flat December to March, so the mix couldn’t have been that better, flat…

Steve Mollenkopf – President and COO: What you saw is you probably saw a little bit less mix from the high end and a little bit more from the emerging market area versus the quarter before.

George S. Davis – EVP and CFO: I would just add when we look at Q2 even though the volumes of MSMs were up relative to our expectations. The mix issue did have an impact of kind of neutralizing the benefit of those higher volumes and so the outperformance in Q2 was more of a QTL story.

A Closer Look: Qualcomm Earnings Cheat Sheet>>